Falsely accused of fraud

In March 2023, Timothy Barker, a former First Nations community manager in Alberta, Canada, purchased several outdoor playhouses on Amazon for his community’s daycare program. Not long after that, Barker received angry Facebook messages from a woman accusing him of hacking into her Walmart account and ordering items to be delivered to his address. Then the Royal Canadian Mounted Police (RCMP) began to investigate him. Barker’s purchases arrived in the mail, but he says they were shipped to him in Walmart boxes instead of Amazon ones. Even though he had his credit card bills and purchase records from Amazon, the RCMP still arrested him for stealing the woman’s credit card and using her account to buy the items from Walmart. Barker subsequently lost his job and has struggled to find another one now that he has a criminal record. He’s been unable to clear his name since. (See “Canadian Man Stuck in Triangle of E-Commerce Fraud,” by Brian Krebs, Krebs on Security, Jan. 19, 2024.)

According to reporter Brian Krebs, Barker and the Walmart customer may have been victims of triangulation fraud in which a consumer thinks they’re buying an item from a legitimate seller online, but the seller doesn’t actually own the item and instead buys it from an online retailer with stolen payment information. The consumer gets what they purchased, but they end up paying the scammer, leaving the real owner of the stolen payment information to dispute the transaction.

A week before Barker’s court date in November, prosecutors stayed the charges against him. While there aren’t plans to prosecute further, it’s still possible that his case could be reopened, preventing him from being fully cleared of the charges. (See “Canadian Man Stuck in Triangle of E-Commerce Fraud.”)

The path to exoneration isn’t easy for people like Barker who say they’ve been falsely accused of fraud. It took eight years for Kenneth De Martino, director of travel agency KD Travel Services Ltd, to clear his name after being accused of defrauding the European Union (EU). The European Commission’s anti-fraud office, OLAF, and Maltese police accused De Martino of intentionally making a false declaration to authorities in 2010. Third-party Local Councils Association representatives ended up being charged for fraudulently claiming reimbursement for first-class flights when they were traveling in economy, though they were later acquitted. De Martino was initially acquitted in 2016, but Malta’s attorney general filed an appeal, insisting De Martino knew about the alleged fraud. The Court of Appeal in Malta decided that the quotations De Martino wrote when issuing flight ticket requests that fraudsters allegedly used to obtain the illegitimate reimbursements weren’t enough to prove a connection to the scam and confirmed De Martino’s innocence. (See “Director of travel agency clears name after he was wrongly accused of involvement in scam,” The Malta Independent, Nov. 5, 2018 and “Former local council officials acquitted over 2008 travel ticket saga,” The Malta Independent, Sept. 15, 2021.)

In Michigan, nearly 40,000 residents were falsely accused of unemployment insurance fraud between 2013 and 2015. The state’s computer system, the Michigan Integrated Data Automated System (MiDAS), automatically accused Michigan residents of accepting improper payments. The residents had stopped receiving their unemployment benefits, and Michigan’s Unemployment Insurance Agency flagged their claims as fraud. One resident learned that she was on the hook for $29,000. Many were wrongly subjected to penalties and aggressive collection techniques, including withholding wages and seizing income tax refunds, leading to personal bankruptcy. (See “Michiganders falsely accused of jobless fraud to share in $20M settlement,” by Jonathan Oosting, Bridge Michigan, Jan. 30, 2024 and “Claimants falsely accused of Michigan unemployment fraud settle with vendors for $180K,” by Adrienne Roberts, Detroit Free Press, Jan. 24, 2024.)

In another case, parents of students at Washington, D.C.’s Duke Ellington School of the Arts complained to the D.C. State Board of Education in 2018 of faulty investigations that took a heavy toll on their families. They alleged that the Office of the State Superintendent of Education (OSSE) wrongly accused dozens of families of children enrolled at the school of falsifying their residency in the school’s district. One of the accused families lived across the street from the school. The report claimed that a quarter of the students at the school weren’t residents and were improperly enrolled, but OSSE later found that at least 65% of the 219 families accused of living outside of D.C. were indeed residents. During the investigations, children were forced to miss classes and donors declined to provide funding because of the negative reports. (See “Duke Ellington School residency fraud accusations caused lasting damage, parents say,” by Dick Uliano, WTOP News, Dec. 20, 2018.)

With other scandals making headlines, including the hundreds of wrongfully convicted postal service workers in the U.K., understanding why these instances occur and the role fraud examiners can play in preventing these miscarriages of justice is crucial. The toll on victims can be serious, and there are lessons to be learned for investigators who want to maintain a reputation for accuracy and professionalism. Here, Fraud Magazine talks to Certified Fraud Examiners (CFEs) and other experts in the field for their insights on why wrongful fraud convictions occur and ways to improve techniques to ensure that justice is upheld in future investigations.

Exoneration is a battle

Beth Mohr, CFE, leads fraud investigations on behalf of victims for prosecution and civil disposition. As managing partner at the New Mexico-based McHard Firm, a CPA firm specializing in forensic accounting, she works with both plaintiff and defense-sided civil cases involving allegations of fraud.

“Our office just finished a case where a U.S. federal agency investigated what they believed to be a crime, and prosecutors went forward with the case,” Mohr tells Fraud Magazine. “But after five years of misery for the suspects, the judge in the case directed a judgment of acquittal, indicating that the basic elements of the crime were not proven.”

Mohr explains that the defendants in this case were lucky because they had good attorneys and access to qualified experts. But without those resources, things could’ve turned out differently. “A wrongful conviction would have resulted in prison time, plus potential deportation from the United States,” says Mohr. However, she tells Fraud Magazine that even if someone is found innocent, they’ve still lost time, money and reputation that can never be recovered.

Virginia Braden, Ph.D., a licensed private investigator based in Kentucky who specializes in wrongful conviction cases and behavioral analysis, reiterates that fighting for exoneration can be painful to multiple parties. “They are battles long fought and hard won and they are devastating to the wrongfully convicted individual, their families and loved ones, and the entire community,” Braden tells Fraud Magazine. “They’re also devastating to the victims of the crime and their loved ones as they are told the answers they were given and the justice they believed they had won was not justice at all.”

According to Braden, while there’s an established process of law by which an individual can be convicted and found guilty of a crime, there’s no process set by the law that lays out how a convicted person may be proven innocent. The obstacles that someone seeking exoneration faces arise from procedural restrictions and a reluctance of the justice system to admit error. Braden tells Fraud Magazine that she believes this reluctance is often a protective reaction, as it’s threatening to one’s sense of safety to acknowledge that a system believed to serve justice can get it wrong. We’d often rather believe a system can’t fail than face the reality of the harm that can come when it does fail, says Braden.

Exoneration may take years and even decades. According to Braden, the National Registry of Exonerations shows that for innocent defendants who were exonerated in 2023, the process took an average of 14.6 years. (See “2023 Annual Report,” The National Registry of Exonerations, March 18, 2024.)

Why wrongful convictions occur

There are various factors contributing to wrongful convictions. “The reasons for wrongful convictions are as varied as the cases themselves,” Mohr says. “There is no single reason for wrongful fraud convictions.”

Some of the common factors that experts say contribute to wrongful convictions include tunnel vision, the cognitive biases of investigators and prosecutors, false confessions, and even technological mishaps. “Evidence can be subject to interpretation, and investigators need to ensure that they’re considering all of the possible interpretations, including the possibility that this is just an error or bad accounting,” Mohr tells Fraud Magazine.

Tunnel vision, when an investigator locks in on someone that they believe is guilty and becomes blind to any other possibility, can be a significant factor in wrongful convictions. “It can be difficult to ignore one’s ‘gut’ intuition, but trusting a gut feeling over a thorough exploration of all possibilities is a surefire way to end up on the wrong side of the truth,” Braden tells Fraud Magazine.

Investigators must also remain vigilant to avoid allowing biases to influence their thinking and actions. Mohr elaborated on the kinds of cognitive biases that can hinder good investigative work in her session titled, “The Blind Spot of Cognitive Bias: Fraud Examination and False Confessions” at the 35th Annual ACFE Global Fraud Conference. Confirmation bias occurs when investigators seek out evidence that supports an already existing belief, and investigators show commitment bias when they continue to hold onto their original opinion even when proven wrong. She explained that most people have a blind spot when it comes to their own bias, but if investigators take steps to be more aware of this tendency and check their behavior it will improve their investigations.

Karren Kenney, J.D., CFE, is the founding attorney for Kenney Legal Defense, a small firm that handles civil defense and criminal defense cases in federal courts throughout California. She specializes in white-collar-related fraud and reviews cases for fraud detection to determine whether an investigation is needed. (See Kenney Legal Defense Corporation.)

Kenney recently had a client who was wrongfully convicted in a federal telemarketing fraud case tried in the Central District of California, Southern Division. After a jury trial that lasted multiple weeks and involved several other defendants, the client was exonerated, and the case was vacated by the Ninth Circuit Court of Appeals on April 9. (See “21-50258 - USA v. Leah Johnson,” GovInfo.)

In Kenney’s experiences cross-examining numerous CFEs, she’s discovered a list of contributing factors that might cause investigators to erroneously conclude that a person is guilty of fraud:

1.  Relying only on financial records. According to Kenney, every fraud case has additional details and background that won’t be reflected in the paper trails and data obtained during an investigation. “It’s imperative to try and figure out the back story before jumping to conclusions,” says Kenney.

2.  Using and relying on someone else’s investigative work without verifying the information given. Kenney recently cross-examined a CFE who realized that she hadn’t independently verified the information that a federal law enforcement officer had provided to her and came across as unprepared on the stand. Cases are often determined by the experts brought in to testify, so it’s crucial to independently verify information.

3.  Failing to see the other side’s potential attack on an investigation. “It’s critical for a CFE to try to see both sides while conducting an investigation to determine who was involved in the fraud, and of those involved, who knew what was going on and agreed to commit the fraud,” says Kenney. She explains that fraudsters are often calculated in their behavior and go to extremes to hide their fraud. They may use lower-level individuals for bank accounts and business-entity documentation, but it would be unjust to charge the lower-level person who might be unaware of the mastermind fraudster’s actions if there’s no reliable evidence to suggest they had any intent to defraud.

Another factor present in some wrongful conviction cases is false confessions. In the U.K. Post Office scandal, 54 postal workers initially pleaded guilty to fraud after the Post Office’s accounting system inaccurately flagged shortfalls in their accounts. More than 900 sub-postmasters were prosecuted in the case that’s now considered one of the most extensive miscarriages of justice in the U.K. (See Case in Point, “Fraud investigations gone wrong.”) After those postal workers were proven innocent, they explained that they were trying to get charges removed to avoid sentencing. Some fraud charges had been dropped for those who pleaded guilty to false accounting, but these guilty pleas reinforced the idea that the postal office workers and not the accounting system were to blame. (See “Wrongful Conviction in England and Wales: An Assessment of Successful Appeals and Key Contributors,” by Rebecca Helm, School of Law at the University of Exeter U.K., 2002 and “Post Office Horizon scandal: Why hundreds were wrongly prosecuted,” BBC.)

Braden asserts that the actions of investigators can contribute to false confessions. “As hard as it can be to believe anyone would falsely confess to something they did not do, especially with a consequence of losing their freedom, false confessions do occur,” she tells Fraud Magazine.

Cognitive bias on the part of investigators is especially problematic when it leads to false confessions. Mohr explained during her ACFE Global Fraud Conference session that when an investigator is convinced of someone’s guilt and refuses to consider any other possibilities, they may interrogate suspects and automatically view their denials as lies, causing many suspects to break down and confess because they see no other way out. She has also written about the importance of understanding and preventing false confessions. (See “When subjects admit guilt but they’re innocent,” by Beth Mohr, CFE, Fraud Magazine, March/April 2023.)

Braden’s research shows that many investigators believe they can determine truthfulness and deceit with high accuracy in interviews and interrogations. However, the research also shows time and again that this isn’t the case, and investigators’ accuracy in detecting deception is more equivalent to chance. Braden advises that investigators must explore all possible scenarios with an open mind to avoid confirmation bias and tunnel vision. Rather than let gut feelings guide an investigation, they should collect facts and allow the evidence to tell the story of what happened.

It’s also difficult to know for sure how frequently people are wrongfully convicted of fraud. “Convictions can be overturned because the person was wrongfully convicted, but convictions can also be overturned because of legal technicalities that have nothing to do with the actual guilt or innocence of any individuals,” Mohr tells Fraud Magazine. “Thus, we can’t even rely on overturned convictions to estimate wrongful convictions.”

The role of technology in false accusations of fraud

Technological errors have played a significant role in some false accusations of fraud. For example, in the Michigan unemployment fraud case, the state admitted that it failed to do a human check of the computer system MiDAS after about 3,200 of the Michigan residents wrongfully convicted of employment insurance fraud joined a class-action lawsuit. According to the Detroit Free Press, the computer system had an error rate of 93%. (See “Michiganders falsely accused of jobless fraud to share in $20M settlement,” by Jonathan Oosting, Bridge Michigan, Jan. 30, 2024 and “Claimants falsely accused of Michigan unemployment fraud settle with vendors for $180K,” by Adrienne Roberts, Detroit Free Press, Jan. 24, 2024.)

According to Rebecca K. Helm in a paper titled, “Wrongful Conviction in England and Wales,” Horizon, the U.K. Post Office’s accounting software, incorrectly reported information about postal workers’ accounts and hundreds of postal workers were prosecuted. (See “Wrongful Conviction in England and Wales: An Assessment of Successful Appeals and Key Contributors,” School of Law at University of Exeter, U.K., 2022.)

Helm writes that although postal workers questioned the shortfalls flagged by Horizon, they weren’t well investigated. The BBC reports that postal workers’ concerns about Horizon were dismissed. Even though evidence suggests that the Post Office knew about some of the problems with Horizon, it blamed postal workers for the shortfalls, and they weren’t apprised of concerns related to Horizon. Defendants were convicted on the basis that the Horizon data was correct, perhaps reflecting a bias toward technology thought to be objective and trustworthy. Helm also writes that attorneys neglected to hire technology experts, resulting in ineffective investigation and disclosure. (See “Wrongful Conviction in England and Wales: An Assessment of Successful Appeals and Key Contributors” and “Post Office Horizon scandal: Why hundreds were wrongly prosecuted.”)

In his podcast interview with the ACFE, Tony McClements, head of investigations at Martin Kenny & Co., an investigative litigation practice in the British Virgin Islands, emphasizes the importance of getting the right experts, especially when it involves complex technologies. He claims there’s no shame in relying on an expert and no advantage in investigators pretending to know about something they don’t understand. (See “The U.K. Post Office Scandal: Lessons in Accountability and System Reform,” ACFE Fraud Talk podcast.)

Preventing injustices

The reasons for wrongful convictions are complex, with no quick fix that can eliminate them from occurring. “However, we do know from the research there are things we can do differently that can get us on the right path and can reduce wrongful convictions right now,” Braden tells Fraud Magazine.

One possible solution is through better use of technology. Joe Welch, vice president of Global Services at MindBridge Analytics, talked with Fraud Magazine about how anomaly-spotting technology could’ve been helpful in preventing the U.K. Post Office scandal. He recently led a webinar for the ACFE titled, “How Anomaly Detection May Have Prevented the British Post Office Scandal.”

“A data-driven approach to governance, risk management and internal control in the Post Office might’ve alerted them sooner to errors in the newly implemented Horizon system,” says Welch. He explains that the postal workers were personally liable for weekly shortfalls in the accounts and declaring them individually. Taking a holistic view of the increasing number of shortfalls declared at branches across the country instead of only looking at the shortfalls in individual branches might’ve prevented countless postal workers from losing their jobs, reputations and money for a mistake that wasn’t their fault.

Welch has a personal connection to the case. His father was one of the sub-postmasters affected by the scandal. While his father never faced criminal conviction in the case, he paid the shortfalls from his own money out of fear of criminal repercussions. “He was always told that he was the ‘only one’ experiencing issues with the Horizon system, a similar line given to thousands of other postal workers,” says Welch. Full financial redress still hasn’t been finalized, though an ongoing public inquiry into the scandal is due to conclude later this year.

Welch explains that advanced data analytics, continuous monitoring and anomaly detection technology can make an organization’s internal control framework more effective. Instead of reviewing a random sample of invoices for errors or one business unit’s activity in isolation, automated detective controls can look at multiple lines of data and run tests and algorithms to check for exceptions, inefficiencies and anomalies that suggest a transaction might need further investigation. “It’s like doing a health check on all of your data,” says Welch.

The solution then is human-centric, says Welch, meaning that people are needed to conduct investigations of the anomalies the technology points out. Rather than relying exclusively on technology as an objective, error-free entity, this approach deters the rate of fraud while utilizing technology with human oversight.

A critical approach to investigations

In addition to implementing a better balance between technology and human oversight, being critical of investigative techniques could help prevent false accusations of fraud. Braden works to correct inadequate investigations that have led to wrongful convictions.

“My role in wrongful convictions cases is to go back as though the crime just occurred and thoroughly investigate,” says Braden. “I treat every wrongful conviction case as though it just happened, as though I have just been called out to the scene. I ascertain who I would interview, what information I would gather, what evidence I would collect and then I ask if that was done at the time of the crime.”

Braden examines reports, interviews and any other findings to understand what might’ve gone wrong in an investigation. If those items have yet to be obtained, she gets them by securing crime scene videos, audio or video of interviews of witnesses and suspects, forensic reports, and tips called into the police. If there are any actions that should’ve been taken but weren’t, she figures out if they can be done now.

When investigating for innocence, Braden says that this means investigating an original investigation. So, it’s two investigations intertwined: the investigation of the crime itself and investigating every aspect of what was done in the original investigation.

When numbers don’t add up, it’s important to thoroughly examine why and determine if it’s fraud or an honest mistake. “In fraud and white-collar cases, we are always asking whether there is intent to defraud, or merely bad accounting,” says Mohr. Fraud investigators can better avoid wrongful convictions by ensuring that they don’t make any rash decisions and always have adequate evidence to support any allegations. They must be in the habit of questioning their own theories of a case.

“Every element needs to be fully investigated and supported with factual evidence, not supposition or assumptions,” says Mohr. “The fraud hypothesis should be questioned at each juncture to ensure that there is predicate to continue the investigation generally, and to investigate this individual, specifically.”

Mohr reaffirms that in the case of the U.K. Post Office workers, it was assumed that the accounting software reporting losses was accurate.

“The fact that fraud, by its very nature, is concealed, means that it’s not enough to know that a fraud occurred,” says Mohr. “Investigators must prove that this individual is the perpetrator, and that the person formed the requisite intent to commit the fraud.” She explains that smart fraudsters will do whatever they can to hide transactions, falsify evidence and anything else to point blame away from themselves, so it’s very easy to follow evidence to the wrong conclusions, resulting in the wrong person being accused. “This is why our ethical obligations as fraud examiners include never commenting on the guilt or innocence of any person,” says Mohr. “It’s too easy to be ‘pretty sure’ and then take shortcuts to put the case together, which can have tragic results.”

Protecting against wrongful fraud convictions

It can be unsettling to think of how quickly an investigation can go wrong or how evidence can seemingly mount up even when one is innocent. Braden offers the following suggestions for individuals on how they can better protect themselves:

1.  Know your rights.

2.  Have legal representation present during all interactions with law enforcement.

3.  Document what is said and done and by whom.

4.  Be actively involved in and insist on knowing what your attorney has followed up on in terms of proof of innocence and how it will be presented in court.

If an individual isn’t happy with their attorney, they can make it known and secure a different one. “I have worked a number of wrongful conviction cases in which the innocent defendant had huge reservations about how their case was unfolding and realized too late that important witnesses had not been contacted, leads had not been followed up on, etc., all of which contributed to the individual being wrongfully convicted,” Braden tells Fraud Magazine.

Many wrongfully convicted individuals don’t have the resources to hire investigators or retain private attorneys, says Braden. However, organizations including the Innocence Project in the U.S. provide legal representation for free and hire investigators for cases, which is critical for establishing innocence and winning exonerations. (See Innocence Project.)

Another way to defend against false accusations is by increasing awareness. According to Braden, portraying real-life stories in movies, streaming series and podcasts makes the reality of wrongful convictions visible to the public. “I am absolutely convinced the vast majority of people are not in any way OK with someone who is innocent going to prison for something they did not do,” says Braden. “This has served to increase what has been termed by scholars an ‘innocence consciousness’ in our society, allowing a front row seat to how these tragedies unfold and their impact on human lives.” (See “How a TV Show Forced Britain’s Devastating Post Office Scandal Into the Light,” by Stephen Castle, The New York Times, Jan. 10, 2024 and “Bone Valley,” by Gilbert King, podcast.)

Wrongful convictions can ruin reputations. Being falsely accused of fraud can cause someone to lose a job, money and other painful consequences when they haven’t done anything wrong. When fraud investigators better understand technology and are willing to admit mistakes and the need to rely on other experts, they can more successfully serve their clients while upholding standards of justice and integrity.

Anna Brahce is editorial assistant of Fraud Magazine. Contact her at ABrahce@ACFE.com.